Hopes Rise over Unwinding of Lehman's Assets

Anousha Sakoui, Financial Times

Monday, 12 Jul 2010 | 7:21 AM ETFinancial Times

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The administrator of Lehman Brothers’ German business has sold $2.4 billion of claims against the failed bank to a group of distressed debt funds, in a move that may help expedite the unwinding of the bank’s assets.

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The claims sold by the administrator of Lehman Brothers Bankhaus, a deposit-taking institution based in Frankfurt, were against two Lehman units including its US business Lehman Brothers Holding.

The other unit, Lehman Commercial Paper, is backed mainly by real estate assets.

The claims, which were sold to a group of distressed debt funds, are estimated to have generated just under $500,000 for the administrator, according to people familiar with the transaction.

Since the US firm’s collapse, a market in trading of claims against the bank has emerged, as well as trading debt issued by the bank. Banks and distressed debt funds have traded debt claims in the form of bond issues by the bank but also claims linked to losses related to derivatives transactions.

The trade of claims from Bankhaus, which is set to close this week, is the biggest since the bank collapsed in 2008 and the first trade of a claim between the different Lehman companies.

“It was a very successful outcome for Bankhaus and its creditors,” said the administrator of Bankhaus.

“In a relatively short period of time, a complex and disputed claim was settled and then, based on a competitive sales process, realized in a way that maximized the cash return for Bankhaus’s estate in order to distribute the cash to its creditors.”

When Lehman collapsed in September 2008, its various entities were placed into insolvency proceedings in jurisdictions across the globe and this has complicated the unwinding of the bank.

The administrators around the world have been embroiled in trying to return assets to clients trapped in the various different units.

Last week Bankhaus filed a $1 billion counter-claim against Lehman’s European operations, Lehman Brothers International Europe, in a dispute over internal group cash payments.

Some distressed debt specialists believe that the move to sell intercompany claims, rather than wait potentially years to settle them, could help speed up the unraveling of some $225 billion of claims.